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spending review is true dividing line, says Monks

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date: Monday 12 August 2002

embargo: 00.01h Wednesday 14 August 2002

Attention: industrial, political and economic correspondents

The third Comprehensive Spending Review marks a true dividing line between the only realistic alternatives for UK Government, according to a TUC report published on the day of the suspended local government workers strike (Wednesday 14th). The report is part of the considered response by the TUC General Council to last months major Government announcement.

While the CSR was overshadowed by industrial action later in the week, TUC General Secretary, John Monks, says if anything should be used to test the unions relations with the Government it should be their commitment of £60bn for public investment over the next three years, a commitment the Conservatives now refuse to match.

TUC General Secretary, John Monks, said:

"If there were any doubt about the true political dividing lines, the Budget and the third Comprehensive Spending Review have made everything clear.

'The £60bn investment in the CSR will be funded by the progressive rise in national insurance, for employers as well as employees, that was announced in the Budget. As the major plank in domestic policy it tells us not only what this Government is all about but how they will fight the next election.

'This is the first Government to increase tax to fund a programme of planned investment, rather than a tax rise in response to a crisis or correct a failure of economic policy, for over thirty years. In contrast, the Tories have dropped their commitment to match Labour's spending and are falling back on their outdated dogma of privatisation, charging and cut-backs. This is the true dividing line between the only viable alternatives for Britain's Government, and despite our differences on other issues, the unions know which side we are on. '

Despite this move, the TUC report says the UK is still a relatively low tax-and-spend economy, dispelling the myth that business and taxpayers are being unfairly squeezed:

In 2001, the UK ranked 21st out of 27 OECD countries when tax and spending is compared.

The latest forecasts suggest the UK will be 19th out of 27 by 2003.

Indeed, the UK now has public spending increasing faster than any other OECD countries other than Ireland and Luxembourg. This growth in public spending is clearly linked to sound economic management, with only Ireland and Luxembourg having lower levels of public debt and spending a lower share of GDP on debt interest payments.

The report says the boost is a significant achievement compared with last twenty years, but the overall rankings show this hardly turns the UK into a high spend, high tax economy.

On the burden of taxes, the report says corporate taxes remain lower than our major competitors in the US, France and Germany, with the UK 21st out of 27 OECD counties in terms of corporation tax. For labour taxes (including national insurance), it is a similar story with the UK 21st out of 24 industrialised countries.

The report also attacks the myth that tax revenues will be swallowed up by inflationary public sector pay settlements. It argues that capital and current budgets are now quite separate and both are fixed within the overall 'spending envelope' so that wages cannot be at the expense of the capital investment programmes in new hospitals and schools and that it makes no significant difference to inflation rate how public sector spending is divided up between pay and non-pay elements. The report says public sector pay growth still lags behind the private sector with growth in earnings since 1995 at 28% in the public and 36% in the private sector.

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